As advertisers plan an advertising campaign, they define a target demography of audience based on gender, age-group, income level, and so forth. Most advertisers understand that it is difficult to achieve a 100% on-target rate for a campaign. For example, if an advertiser's campaign is intended to be shown to only women, it is likely that at least some men will also view the campaign. Using industry benchmarks, calculated by a demographics provider such as Nielsen®, that are based on historical campaign data from Nielsen® Digital Ad Ratings, an advertiser can figure out that on average, campaigns with a defined audience of women achieve a 75% on-target rate (meaning that 25% of the audience that views the campaign will be male).
Hence, an advertiser may ask a content publisher (e.g., Comcast®, Sony® Crackle, Netflix®, and Hulu®) to promise that they will provide them with at least a 75% on-target rate or more. Conventionally, publishers attempt to reach the advertiser-specified demography in a variety of different ways, such as by using first party data such as type of content watched or by targeting the campaigns to user segments created based on certain heuristics, such as users who have clicked on a cosmetics ad in past. In this way, publishers can guess that certain audiences are likely to be of a certain demographic makeup, such as females, and then they will show the campaign to such audiences.
After the campaign, demographics data may be collected to determine the actual demography of the views of the campaign. For example, if the campaign is to be shown during a particular video, the demographics provider can calculate the percentage of women in the audience that actually viewed the video.
Conventionally, if a shortfall occurs, the advertiser may pay less or even charge a penalty to the publisher. For example, if audience turns out to be 60% women, the advertiser may ask to pay only for the 60% of women that viewed the campaign (rather than the 75% that was requested).
Content publishers generally incur huge impression wastage (in the tune of 40-45%) when they guess audience demography using first party and third party data available to them, such as the type of content watched and user segments. This occurs because there is often a mismatch between what a demographics provider, such as Nielsen®, reports and the demography calculated by the publisher. Many advertisers will only pay for the on-target impressions reported by Nielsen®. While publishers and advertisers have made their peace with similar wastage in the traditional TV world, they expect much better results in the digital world given the power of addressability of digital content.